26th July 2017

On June 20th 2017, hundreds of renewable energy professionals from all over the world gathered to hear four leading experts discuss the impact of the recent DEWA CSP 200 bid on the MENA region. At 9.45 US$ cents per kWh for a 200 MW CSP plant with more than 8 hours of storage, the lowest bid presented in Dubai opens the possibility of replicating similar CSP bids across MENA, enabling countries across the region to harness the sun to produce clean and dispatchable energy at a competitive cost. Further to this, several countries offer a much better solar resource and, contrary to the UAE, are eligible for concessional financing. Below are the highlights from this debate.

Remarkable cost reductions for Concentrated Solar Power

CSP costs have come down from 26.9 € cents per kWh in 2007 to below 10 US$ cents per kWh now. Paddy Padmanathan, CEO of ACWA Power believes that “it is amazing that we have managed to reduce costs by so much with only 5 GW of total CSP deployments” He attributes these cost reductions to optimization and technological improvements, competition created by more companies joining the supply chain, and more deployments, which have given more confidence to companies across the CSP supply chain.

“It is amazing that we have managed to reduce costs by so much with only 5 GW of total CSP deployments”

Paddy Padmanathan, President CEO, ACWA Power

A poll revealed that a plurality of viewers (43%) thought that in 2022 CSP costs in the region would be between 8 and 10 US$ cents per kWh, followed by 6 to 8 US$ cents per kWh (39%). Of the speakers, Wouters and Padmanathan were the most bullish, arguing for a price range between 6 and 8 US$ cents per kWh. Padmanathan explained that he sees a clear path to CSP at 6 US$ cents per kWh because further deployments will give EPC contractors more confidence, enabling them to reduce contingency risk margins. He also stated that the path to further cost reductions is a bigger market, which fosters more competition and innovation as market players try to out-do each other.

At the other end of the spectrum, Chase argued that prices would remain above 10 US$ cents per kWh, expressing skepticism about whether the CSP pipeline would ever get built in the face of competition from cheaper PV and fast-improving batteries.

Tavoulareas, was still optimistic although more conservative than Wouters and Padmanathan, arguing that prices would fall along a wider range, between 6 and 10 US$ cents per kWh, depending on local conditions.

Tavoulareas stressed that costs are country-specific and that CSP needs to be compared to the alternative options. “In certain markets, CSP with thermal storage could be competitive even at 10 US$ cents per kWh. Remember that the cost of oil-fired power generation ranges from 15 to 25 US$ cents per kWh, and there are still many countries burning oil to produce electricity”.

Differences in the local credit environment, taxation, load profiles, contractor fees and solar resources were cited as some of the factors that contribute to different costs in different markets.

“In certain markets, CSP with thermal storage could be competitive even at 10 US$ cents per kWh. Remember that the cost of oil-fired power generation ranges from 15 to 25 US$ cents per kWh, and there are still many countries burning oil to produce electricity”

Stratos Tavoulareas, International Financial Corporation

Citing Jordan as an example of a country with a much higher direct normal irradiation (DNI) than the UAE, Padmanathan explained that the tariff would be 30% lower than in Dubai, other things being equal. But the axiom “other things being equal” rarely applies to the real world. In reality, local market conditions would dictate that the tariff would not be reduced by quite as much.

“But in Jordan, if you could deliver dispatchable electricity at 10 US$ cents per kWh they should take it with both hands and run. Because the average cost of generation is in the twenties”, said Padmanathan. In Jordan, domestic shale oil receives a tariff of 13.75 US$ cents per kWh. It seems that CSP is now able to outcompete shale oil in Jordan. Additionally, deploying CSP instead of shale oil would prevent significant carbon emissions, as this fossil fuel is among the highest CO2 emitters per unit of electricity.

One of the main benefits of CSP is that it enables countries who rely on imported fossil fuels to reduce imports. Reducing imports mitigates exposure to market price fluctuations, which could see the price of fossil fuels soar, making a dent on the importing country’s foreign currency reserves. For countries that produce oil and gas, CSP enables them to prolong the life of their reserves and free them up for higher value-added uses than burning them for electricity.

Competing views of the market: PV with batteries vs CSP with Thermal Storage

Jenny Chase (BNEF) did not share in the optimistic outlook for CSP with thermal storage, believing instead that PV and Li-ion would be chosen by the market as the winning technologies. “You can now get PV modules, the whole system, for under US$ 1 per Watt, which is so cheap that you could install it almost anywhere. Lithium-ion batteries will also continue coming down in cost because of higher electric vehicle (EV) sales. For these technologies is when and not if. Unfortunately, there is a big if around whether the projects in the CSP pipeline will ever get built”.

According to Chase, a 200 MW PV plant with 1600 MWh of battery storage will reach 11.5 cents per kWh in 2021, which is when the DEWA CSP 200 project is due to come online. As a rebuttal, other speakers maintained that CSP with storage is already delivering below this price. “The DEWA CSP 200 project has not been built yet or even been awarded the tender, but these tenders come with stiff penalties for non-performance and we need to live with them for 20 to 25 years”, replied Padmanathan. This means that the figure of 9.45 US$ cents per kWh for the 200 MW CSP plant with more than 8 hours of thermal storage is a realistic figure which responds to commercial realities.

“the power sector will not be dominated by one technology. What you will see is various technologies, including CSP with thermal storage, playing a different role each”

Stratos Tavoulareas, International Financial Corporation

In the end, “the power sector will not be dominated by one technology. What you will see is various technologies, including CSP with thermal storage, playing a different role each”, contended Tavoulareas.

“In Jordan, if you could deliver dispatchable electricity at 10 US$ cents per kWh they should take it with both hands and run. Because the average cost of generation is in the twenties”

Paddy Padmanathan, President CEO, ACWA Power

Placing a value on dispatchability and the future of the energy system

All speakers agreed that dispatchability is enormously important. As the need to achieve a low carbon energy system becomes apparent, more variable renewables are installed. This demands that the entire energy system becomes more flexible. As Tavoulareas explained, a cloud over a PV plant would cause a sudden drop in production that needs to be compensated with additional production elsewhere in the system. Similarly, an energy system with a lot of PV would see production soar during midday, sometimes surpassing demand.

Currently, the operator has no choice but to waste the energy surplus, a practice known as curtailment. This means that unless the system is flexible enough to accommodate spikes and drops in production, the full value of variable renewables is not realized. CSP with thermal storage would be part of the solution, as would PV with batteries.

What is clear from this discussion is that the future energy system will need to be renewable and dispatchable. In the words of Paddy Padmanathan, “what we will see in the future is a mix CSP with thermal storage, batteries and power electronics. It’s an exciting future and I’m happy to be part of it”.

World Bank Group reaffirms commitment to CSP, especially in the MENA region

The World Bank Group sees potential for CSP in the MENA region and will continue supporting the technology in countries where it would add value. The Noor Ouarzazate Solar complex, in Morocco, as well as various projects in South Africa have been built with concessional financing from the World Bank Group. “We would like to see this technology being launched on a fully commercial basis”, stated Tavoulareas, “but we understand that new technologies face many market barriers, which is why we are committed to supporting CSP through concessional financing”.

Similarly, in 2016 the World Bank Group, with support from the Climate Investment Funds (CIF), launched the Middle East and North Africa Concentrated Solar Power Knowledge and Innovation Program (MENA CSP KIP). This three-year Program is designed primarily as a resource to address knowledge and awareness gaps, to link projects with sources of finance and technical advice, and to promote innovation to enable CSP investments in MENA to move forward faster, and in more countries. The knowledge generated in MENA will also help to facilitate CSP investments elsewhere in the world, creating a virtuous circle of CSP investments and cost reductions through global economies of scale and learning.

“We would like to see this technology being launched on a fully commercial basis”, stated Tavoulareas, “but we understand that new technologies face many market barriers, which is why we are committed to supporting CSP through concessional financing”

The Middle East and North Africa Concentrating Solar Power Knowledge and Innovation Program aims to accelerate CSP investments in the region by addressing knowledge and awareness gaps, linking projects with sources of finance and technical advice, and promoting innovation. This three-year program was launched in late 2016 by the World Bank with support from the Climate Investment Funds (CIF).

The Center for Mediterranean Integration (CMI) is a multi-partner platform where development agencies, Governments, local authorities and civil society from around the Mediterranean convene in order to exchange knowledge, discuss public policies, and identify the solutions needed to address key challenges facing the Mediterranean region.

About CIF

Since 2008, the Climate Investment Funds (CIF) has built a portfolio of over 300 investments in 72 developing and middle-income countries to scale up renewable energy and clean technologies, mainstream climate resilience in development plans and action, and support the sustainable management of forests. Although most programs and projects are still in the early stages of implementation, our funding has already contributed to over 3 gigawatts of new renewable energy capacity and close to 3 million people are already benefiting from CIF-supported climate resilience measures. Our experience shows that with strong leadership, the right technical and financial support, and inclusive partnerships, difficult investment decisions can be made with tangible results.